More investors putting their money into Reits

Published on Aug 17, 2013

Compared with banks, S'pore Reits seen to give 'decent returns'

By Jonathan Kwok

THE local real estate investment trust (Reit) market has grown strongly in recent years, with 25 Reits now listed on the Singapore Exchange (SGX).

The newest addition is Soilbuild Business Space Reit, which made its debut yesterday. Two other recently listed ones which have also yet to pay out a distribution are SPH Reit and Mapletree Greater China Commercial Trust.

As for the other 22 vehicles, the average yield was 6.4 per cent, according to a note this week by SGX My Gateway, the bourse operator's investor education portal.

That is considered a decent return, market watchers said, with bank deposit rates still at ultra-low levels.

"The number of Reits listed on SGX has grown eightfold over the past 10 years, with Fortune Reit (becoming) the third Reit to reach a 10 year anniversary of listing on SGX," said the SGX My Gateway note. Fortune Reit, which trades in Hong Kong dollars, holds a portfolio of retail malls in Hong Kong.

The two older Reits are Singapore-focused shopping mall owner CapitaMall Trust, and Ascendas Reit, which owns business park and industrial space.

Reits, however, operate under a host of regulations and limitations. For instance, they face restrictions on the level of debt gearing they can undertake. And no more than 10 per cent of the properties in a Reit can be under development at any one time.

But it is such rules that have made them popular to investors who want peace of mind and a regular distribution income. This has helped to expand the Reit market dramatically.

For instance, the limit on the amount of assets that can be under development helps assure investors that they are buying into a portfolio comprising mostly completed properties. This would shield investors from the risks of having to depend on future returns from properties that are yet to be completed.

Also, Reits enjoy tax benefits if they pay out at least 90 per cent of income as distributions. They mostly keep to this payout ratio, assuring investors of a regular flow of income.

In contrast, while business trusts such as Forterra Trust, Perennial China Retail Trust and Croesus Retail Trust also hold properties, they are structured differently from Reits.

The rules governing business trusts are much less restrictive - in theory, a business trust can develop far more properties or distribute less than 90 per cent of income.

The SGX My Gateway data showed that Reit yields ranged from 4.4 per cent for Parkway Life Reit, to 8.5 per cent for Sabana Shari'ah Compliant Industrial Reit.

Yields tend to be lower for health-care Reits like Parkway Life Reit and shopping mall owners like CapitaMall Trust. This is because incomes for these assets are considered to be more stable and resilient, so the risk is lower.

On the other hand, yields tend to be slightly higher for office space Reits, and even higher for owners of industrial space like Sabana Reit, as these are perceived to be less resilient to downturns.

SGX My Gateway calculated the yields using "indicative dividend yields". This involved taking the most recent dividend, and annualising this amount to provide a yield for the whole year.
jonkwok@sph.com.sg